Motorcar Parts of America, Inc.
MOTORCAR PARTS AMERICA INC (Form: DEFA14A, Received: 03/10/2017 17:02:42)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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Motorcar Parts of America (“MPA”) is providing this additional statement with respect to the 2017 Annual Meeting of Shareholders to be held on March 24, 2017.
 
MPA is aware that some shareholders and shareholder advisory firms have raised some potential issues, and may have misunderstood, components of MPA’s executive compensation program. As a result, MPA is providing the following supplemental disclosure to its proxy statement to address these potential issues:

Potential Issue
 
Additional Information
     
Fiscal year 2016 bonuses were awarded based solely on discretion rather than based on the achievement of pre-determined performance goals
 
·      A significant portion of the total compensation for each named executive officer (who we refer to herein as an “executive”) is earned based on the achievement of pre-set goals and formulas, including annual cash bonuses under MPA’s Objective Goals Strategies and Measures (“OGSM”) program.
·      For fiscal year 2016, for example, the executives’ total annual cash bonus opportunity under the OGSM was dependent upon achieving a threshold Adjusted EBITDA goal of $70,189,000. 1   If this threshold was achieved, then the executive would be eligible to receive his target bonus opportunity (the “Target Bonus”) for fiscal year 2016.
·       In addition, each executive was eligible to earn an additional bonus under the OGSM based on the achievement of  individual performance goals applicable to each executive.  Negative discretion also could be utilized to reduce bonuses based on the failure to achieve applicable individual performance goals.
·        The company’s actual Adjusted EBITDA achievement for fiscal  year 2016 was $79,039,000, thus surpassing the threshold goal.
·        If actual Adjusted EBITDA achieved for fiscal year 2016 exceeded the threshold, then each executive’s Target Bonus was increased by a corresponding factor.  Because actual Adjusted EBITDA achieved was 112.6% of the threshold goal, each executive’s Target Bonus was multiplied by 112.6%.
·        Messrs. Joffe, Daly, Lee, Umansky and Schooner received additional bonuses and Mr. Kratz had a downward adjustment based on individual performance goals.
 

1 For a description of how we calculate Adjusted EBITDA, please refer to Annex A.
 

   
·        The tables below set forth the each executive’s aggregate bonus opportunity and actual bonus earned with respect to fiscal year 2016.  In addition, we have reproduced a Summary Compensation Table clarifying that certain of these bonuses are disclosable under the “Non-Equity Incentive Compensation Plan” column rather than the “Bonus” column.
     
MPA’s CEO compensation was not tied to performance
 
·        According to ISS, MPA’s total shareholder return (TSR) outperformed its GICS group and Russell 3000 peers on a one-, three-, and five-year basis.
·        During fiscal year 2016, TSR was +36.6%.
·        Our CEO’s compensation decreased significantly in fiscal year 2016, compared to fiscal year 2015.
·        On a quantitative screening basis, ISS had “low concern” about CEO compensation and noted that the degree of alignment with performance was “better than 67% of companies” in the Russell 3000.
     
MPA did not respond to the results of the 2016 advisory vote on executive compensation
 
·        Because of the timing of MPA’s annual meetings (which take place approximately 11.5 months after the end of a fiscal year), it was impossible for MPA’s compensation committee to take any action in fiscal year 2016 in response to last year’s vote.
·        MPA and its directors have engaged with more than 2/3 of  its largest shareholders that are actively managed.
·        As a direct result of shareholder feedback and expert review, MPA has adopted a number of reforms since the 2016 advisory vote on pay, including:
o        Adopted a clawback policy
o       Adopted an executive and director stock ownership policy
o        Adopted an anti-hedging and anti-pledging policy
o        Hired an executive compensation consultant to do a complete review of compensation practices, which it expects to implement for fiscal year 2017 compensation
 

2016 Target Bonus Opportunities

Named Executive
Officer
 
Target Bonus
   
Actual Company
Bonus
   
Actual
Individual Bonus
   
Actual Total
Bonus
 
Selwyn Joffe
 
$
579,200
   
$
652,200
   
$
47,800
   
$
700,000
 
David Lee
 
$
89,250
   
$
100,500
   
$
500
   
$
101,000
 
Kevin Daly
 
$
52,000
   
$
58,600
   
$
200
   
$
58,800
 
Steve Kratz
 
$
105,000
   
$
118,200
   
$
(27,200
)
 
$
91,000
 
Michael Umansky
 
$
101,200
   
$
114,000
   
$
9,900
   
$
123,900
 
Doug Schooner
 
$
88,200
   
$
99,300
   
$
1,700
   
$
101,000
 
 

Summary Compensation Table

The following table sets forth information concerning fiscal 2016, 2015 and 2014 compensation of our named executive officers.

Name & Principal
Position
 
Fiscal
Year
 
Salary
   
Bonus (1)
   
Stock Awards
   
Options
Awards (2)
   
Non-Equity
Incentive Plan
Compensation
(1)
   
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings (3)
   
All Other
Compensation
(4)
   
Total
 
Selwin Joffe
 
2016
 
$
700,000
   
$
47,900
   
$
389,125
   
$
374,663
   
$
652,200
   
$
   
$
327,520
   
$
2,491,817
 
Chairman of the board,
 
2015
   
674,616
     
1,778,834
     
1,350,893
     
     
     
     
223,056
     
4,027,399
 
President and CEO
 
2014
   
600,000
     
1,174,806
     
434,312
     
374,790
     
     
     
729,209
     
3,313,117
 
                                                                     
David Lee
 
2016
 
$
262,192
   
$
600
   
$
96,503
   
$
92,951
   
$
100,500
   
$
   
$
70,200
   
$
622,946
 
Chief Financial Officer
 
2015
   
220,000
     
324,260
     
84,841
     
89,510
     
     
     
61,990
     
780,601
 
   
2014
   
220,000
     
208,458
     
108,112
     
93,586
     
     
     
57,004
     
687,160
 
                                                                     
Kevin Daly
 
2016
 
$
214,462
   
$
300
   
$
52,921
   
$
50,050
   
$
58,600
   
$
   
$
29,591
   
$
405,924
 
Chief Accounting Officer
 
2015
   
208,000
     
187,919
     
45,860
     
48,124
     
     
     
24,663
     
514,566
 
   
2014
   
208,000
     
133,386
     
57,784
     
50,151
     
     
     
23,493
     
472,815
 
                                                                     
Steve Kratz
 
2016
 
$
350,000
   
$
100
   
$
105,842
   
$
101,531
   
$
91,000
   
$
   
$
25,630
   
$
674,103
 
Chief Operating Officer
 
2015
   
350,000
     
374,646
     
91,720
     
96,247
     
     
     
22,696
     
935,309
 
   
2014
   
350,000
     
271,248
     
129,548
     
111,497
     
     
     
20,623
     
882,916
 
                                                                     
Michael Umansky
 
2016
 
$
506,000
   
$
10,000
   
$
68,486
   
$
67,211
   
$
114,000
   
$
   
$
85,551
   
$
851,248
 
Vice President, Secretary and General Counsel
 
2015
   
506,000
     
316,343
     
59,618
     
63,523
     
     
     
56,414
     
1,001,898
 
   
2014
   
506,000
     
194,920
     
77,356
     
67,167
     
     
66,006
     
55,618
     
967,066
 
                                                                     
Doug Schooner
 
2016
 
$
294,000
   
$
1,800
   
$
84,051
   
$
80,081
   
$
99,300
   
$
   
$
71,246
   
$
630,478
 
Chief Manufacturing Officer
 
2015
   
286,385
     
265,089
     
59,618
     
61,598
     
     
     
62,767
     
735,457
 
   
2014
   
250,000
     
182,388
     
75,492
     
64,928
     
     
333
     
56,905
     
630,045
 


 
(1)            Amounts in the “Bonus” column include a $100 bonus paid to each of the Company’s employees during December of each year, including the named executive officers, and bonuses awarded to the named executive officers based on the achievement of their OGSM individual performance goals.  Amounts in the “Non-Equity Incentive Compensation Plan” column represent annual cash bonuses awarded to the named executive officers based on the achievement of Adjusted EBITDA goals under the OGSM (and subject to any negative discretion).
 

(2)            Option award amounts represent the aggregate grant date fair value of options granted during the fiscal years ended March 31, 2016, 2015, and 2014.
(3)            All amounts represent nonqualified deferred compensation earnings.
(4)            The following chart is a summary of the items that are included in the ‘‘All Other Compensation’’ totals for the fiscal year ended March 31, 2016:

Name
 
Automobile
Expenses
   
Health
Insurance
Premiums
   
401K
Employer’s
contribution
   
Deferred
Compensation
Plan
Employer’s
contribution
   
Other
   
Total
 
Selwyn Joffe
 
$
18,000
   
$
86,426
   
$
8,861
   
$
214,233
   
$
   
$
327,520
 
David Lee
 
$
   
$
62,426
   
$
7,774
   
$
   
$
   
$
70,200
 
Kevin Daly
 
$
   
$
21,914
   
$
6,043
   
$
1,634
   
$
   
$
29,591
 
Steve Kratz
 
$
   
$
21,914
   
$
3,716
   
$
   
$
   
$
25,630
 
Michael Umansky
 
$
1,907
   
$
43,585
   
$
11,890
   
$
28,978
   
$
   
$
85,551
 
Doug Schooner
 
$
   
$
62,426
   
$
8,820
   
$
   
$
   
$
71,216
 
 

Annex A
 
MPA makes adjustments to the following items to calculate its Adjusted EBITDA:

Initial return and stock adjustment accruals related to new business. In connection with new business, MPA may establish initial return and stock adjustment accruals to account for the anticipated increased levels of business activity. MPA excluded these initial up-front accruals from net sales because they do not reflect MPA’s operations on an ongoing basis and excluding such accruals enables period-over-period comparability.

Customer allowances related to new business. In connection with new business, MPA may purchase cores from customers, may purchase the customer’s prior supplier’s inventory, or may provide certain customer allowances. The allowances are granted on a negotiated basis, and MPA excluded these allowances from net sales because they do not reflect ongoing product pricing or net sales and excluding such allowances enables period-over-period comparability.

New product line start-up costs. These are start-up costs incurred prior to recognizing sales for the launch of new product lines. MPA excluded start-up costs because they do not reflect MPA’s operations on an ongoing basis and excluding such costs enables period-over-period comparability.

Lower of cost or market revaluation - cores on customers' shelves and inventory step-up amortization. On a quarterly basis, MPA revalues long-term core inventory based on lower of cost or market in accordance with MPA’s accounting policies. The impact of this revaluation is reflected in cost of goods sold. MPA excluded the lower of cost or market revaluation for cores on customers’ shelves because the core inventory on the customers’ shelves is not consumed or realized in cash during MPA’s normal operating cycle. Additionally, amortization of inventory step-up relates to an acquisition and is excluded because it is not ongoing. Neither is used by management to assess the profitability of its business operations.

Cost of customer allowances and stock adjustment accruals related to new business. As described above for the adjustments to net sales, MPA also adds back the cost of customer allowances related to inventory purchases and stock adjustment accruals to cost of goods sold because they do not reflect MPA’s operations on an ongoing basis and excluding such costs enables period-over-period comparability .

Legal, severance, acquisition, financing, transition and other costs. MPA has incurred significant legal costs related to discontinued subsidiaries and a settlement payment related to a claim by an investment bank. Additionally, MPA has incurred severance, acquisition, financing, transition and other costs that are not related to current operations. MPA excluded these costs to enable period-over-period comparability.

Payment received in connection with the settlement of litigation related to discontinued subsidiaries. MPA received a payment in connection with the settlement of litigation related to discontinued subsidiaries. MPA excluded this payment to enable period-over-period comparability.

Bad debt expense resulting from the bankruptcy filing by a customer. MPA incurred bad debt expense related to the bankruptcy filing by a customer. MPA excluded the expense for this customer because it does not believe this expense is reflective of ongoing business and operating results.

Payment made in connection with the settlement of litigation, net of insurance recoveries, related to discontinued subsidiaries. MPA made a payment in connection with the settlement of litigation related to discontinued subsidiaries. MPA believes excluding this payment, net of insurance recoveries, enables period-over-period comparability.

Share-based compensation expenses. These expenses primarily consist of the cost to provide employee restricted stock and restricted stock units, and employee stock options. MPA excluded share-based compensation expense because it is not used by management to assess the profitability of its business operations.

Mark-to-market losses (gains). MPA excluded mark-to-market gains and losses because they are unrealized and are not reflective of actual current cash flows and operating results.